SEBI takes big action in IEX insider trading case, bars 8 entities from trading

Capital market regulator SEBI on Wednesday issued an interim order directing the seizure of suspected unlawful gains amounting to Rs 173 crore in connection with insider trading in energy exchange IEX. The order followed SEBI's search operations at multiple locations in the country between September 18 and 20. During the raids, investigators found that suspected entities were regularly receiving price-sensitive information from two senior CERC officials, in order to secure illegal gains by trading in IEX securities. It barred eight entities from dealing in the domestic securities marker until the authorities receive the entire amount.

The SEBI probe also found unusual trading activity before the announcement.

What is the matter? When did this activity take place?

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On July 23, power regulator issued a directive to implement market coupling, an announcement that triggered a plunge of almost 30 per cent in the IEX stock on Dalal Street the next day.

Insider trading

In capital markets, listed companies are required to disclose all financial and other price-sensitive information in a timely and transparent manner so that it is equally accessible to every investor.

This ensures a level playing field and maintains market integrity.

Insider trading, on the other hand, refers to any activity where an individual or entity trades in a company’s securities based on material information -- also known in accounting parlance as price-sensitive information -- that is not yet publicly available, or where there is partial or delayed disclosure of such information.

Simply put, insider trading involves gaining an unfair advantage by using confidential or non-public information for personal or institutional profit.

Here are answers to a few frequently asked questions (FAQs) on the subject:

What is insider trading?

Insider trading refers to trading a company’s shares or other securities based on non-public information that can influence its stock price.

When an entity uses such information before it becomes public, it gives them an unfair advantage over other investors.

Why do people engage in insider trading?

Traders or insiders engage in it to make profits or to avoid losses illegally before the market reacts to certain news.

What happens if one is caught practising insider trading?

If caught, SEBI can conduct investigations, freeze assets, seize unlawful gains, and ban the individual or entity from trading in the markets.

The accused may face heavy financial penalties and criminal prosecution.

Is insider trading a punishable offence?

Yes. Insider trading is a serious and punishable offence under SEBI regulations.